Don't Be So Sure a Mortgage Broker will Charge You More!

I am an avid reader of Money magazine. In fact, I just blogged a couple days ago about Flying Tips during the holiday season: http://activerain.com/blogsview/761519/Flying-Tips-This-Holiday-Season, and many of the tips were from Money.

In their November issue they give a money tip to avoid brokers stating that brokers on average charge 27% more in fees.

Now, my first point is that this is/was likely true, when speaking of averages. As we all know, there were a lot of unscrupulous mortgage brokers out there giving brokers a bad rap for good reason during the hey day of sub-prime lending. I am proud to say that I only did two 2-year ARMS ever before I woke up and had the a-ha that this group of borrowers is not, in general, likely to turn their credit profile around in two years. But this article is referring to averages, and who wants an average broker?!

I would argue that with the collapse of sub-prime lending, the bulk of brokers who charged excessively are gone from the market. In fact, I can speak first hand as I watched at least one colleague flunk out of the business because he couldn't adapt to the changing industry. I own a rental property, and I actually rented the property to a fellow broker only to watch as month after month he could not close many deals as the sub-prime debacle unfolded. Mind you, this is a broker who during the peak of the market, made over $400,000 in one year! But when he could no longer make 5 points on a deal, he just couldn't hang in there any more. He ended up filing for bankruptcy. I've heard recently that he moved on to telemarketing!

My point is really that, from my observation, in order to be competitive in this market, you better not charge more than the next guy or gal! In this, shop til you drop mentality, you better be able to differentiate yourself from the competition! It's hard to do that if your fees are 27% higher than the person who works at the direct lender.

My observation is also that the amount of fees charged really depends more on the individual loan originator whether they work at a bank, a direct lender, or a broker! Having worked for both a direct lender and a broker, I can speak from personal experience when I state this having watched my co-workers charge more at each company.

Money did make a really good point- look at APR not rate! By doing so, you or your client will get the most accurate picture about whether or not fees are excessive!

The best irony of the article was Money'sadvice to shop on your own by going to bankrate.com! I decided to check this out just to see what the competition was quoting today, and I had to laugh as one of the companies featured was another broker! So much for checking out their sources!

Finally, I would like to say that as a broker, there are pros and cons to working at a broker or a direct lender. I personally have found that working for a broker far outweighs working for a direct lender. Every day I have access to multiple banks, allowing me to compare rates for customers without charging more in fees. Rates are often cyclical. One week one bank will be low and the next week another bank will be low. For me, every week, I can find the best rate by having options. And in this market, its hard to compete if your rates or fees are higher!